The Electricity Authority has put a temporary block on big low-price power deals to stop consumers unfairly paying the cost.
Electricity contracts of a certain size could have adverse effects on household power bills, the Electricity Authority says. Photo: 123RF
It has made an urgent and surprise amendment to the industry code which stops power companies doing deals to supply more than 150 megawatts without its approval.
The ban followed news that the Tiwai Point aluminium smelter was starting talks for power supply to stay open after 2024.
"The authority last year observed that there was the potential for electricity contracts of a certain size to have adverse impacts on other consumers," the authority's general manager of market policy, Andrew Doube, said.
The smelter's 2021 cut price deal with Meridian and Contact, believed to be less than 4 cents a unit, would not be affected by the ban but highlighted the consequences for other consumers.
"The authority estimated the impact of the contract could potentially lead to households paying up to $200 extra on their electricity bills each year.
"This is because the cut-price electricity deal negotiated to keep the smelter operating could have been less than the cost of producing the electricity, effectively maintaining demand and keeping prices high in the wholesale market."
He said the deal was estimated to have cost general consumers as much as $850 million a year, which had been pocketed by generators.
"While the authority did not definitively determine that the Tiwai contract was inefficient it considered ... that a timely and targeted intervention was required. This is all the more urgent given the recent announcement that NZAS is seeking to negotiate a new deal with generators when its current contract expires at the end of 2024."
Under the nine-month ban power companies will not be able to do supply deals unless the buyer can sell unused electricity, the net value of the contract is positive, or there is specific clearance given by the Electricity Authority.
The current Tiwai contract was the only one, which would have fallen under the new rules, but Doube said it was aware that others were being contemplated that could shift prices.
During the ban the authority will consult on a permanent change to the industry code.